In Part 1, the idea of various land specific websites was discussed. This time let’s surf around the topic of social media. Not that long ago everything was e-business, e-commerce, e-books and now it is just normal day-to-day regular business to have a website, shop online and read digital books. The same thing is happening with social media. To re-phrase an old saying… what was once new is old again.

Social media began with an online place for your “stuff” (most notably the music crowd that adopted MySpace in droves when it debuted) then along came likes, tweets, posts, and now timelines. But now it’s not really social media as a “New” category anymore – it’s business. Nearly every brand has a Facebook page or Twitter account and although new tools show up like Klout and Google+… it really all is just forms of marketing.

New social networks like Chime.in are popping up like popcorn all the time. How could anyone let alone your land agent keep up with all these social profiles? They should be outside on the land and not face plowed into a computer screen, right? True enough maybe but the cold hard fact is that nearly everyone starts their real estate search online long before they contact an agent. The National Association of Realtors had a stat a couple of years ago that was nearly 87% of buyers start their searches online first before contacting anyone. That number has likely increased even more.

So how do you know if your land agent is marketing your land on the right social media sites? The short answer is you don’t! No magic silver bullet exists that puts your listing on every single place but as with most things there are some hot spots. The major players are Facebook, Twitter, LinkedIn and now Google+ might be added to that list. So should your land be listed in all these places? Probably not. However, agents that network aggressively will have profiles on these sites and keep them current. An agent flooding their news feeds with listing advertisements will be ignored lightning fast as users quickly hit the “Hide” button.

A quick and easy way to look up what profiles a person or brokerage has is to see if they have a Follr profile like this or an About Me profile. These sites or others like them list all the profiles in one place and make it easy to see at quick glance which networks they use. The number of profiles is not necessarily indicative of effective social media presence because sometimes profiles get setup at hundreds of places but they are never maintained so look for activity at least monthly or in some cases weekly depending on the network. So we’ll use the top websites as examples of how land might be marketed.

Facebook

First, Facebook. WHY? Well, because the whole universe is on there it seems. Facebook individual profiles are not the best place to market anything but likely the agent would have their job description and links to their websites or listings from their profile. The other option is a Facebook Business Page which is probably where most agents post information about new listings or they might even have a special tab setup just for listings. However, an overlooked source on Facebook is group interest pages like hunting pages where someone might be posting that they are looking for hunting land. This is a perfect opportunity for an agent to pop in and comment that they have a listing that might work. A word of caution though… Social media is time consuming and not everyone is going to be active on all sites so just because an agent is not posting and commenting all over the place does not mean they are not marketing your land.

LinkedIn

Next up, LinkedIn. This is definitely not a place to advertise listings but it is one of the best places for agents to network and connect. The profile should be current with links to their listings or website but again posting listings in the news feed will not be useful. However, there are several groups where listings can be promoted and discussed. We have used some of the cattle and beef networks where we keep up on hay and alfalfa topics and have posted links to our pasture listings when appropriate. LinkedIn also has several real estate groups where listings are allowed but moderation is key or the listings will just get lost in all the noise.

Twitter

Finally, we have Twitter. Basically a shortened bullet point version of other sites like Google+ or Facebook. You have to talk concise and fast on twitter and the news feeds move so fast that just like the commercial – it will be so… 47 seconds ago. Twitter users hate automatic tweets from other sites so if a twitter account is linked to Facebook and the comments are being automatically posted – they are cut off after 140 characters and then the person has to go click on the Facebook link which defeats the purpose of being on Twitter. The 3 best advantages of Twitter are lists, hashtags and chats. Lists are one way to group users together so you can read news feeds from specific followers. Hashtags are the number pound (#) sign before words on Twitter and they make it easier to find tweets on topics you are interested in. For example, by searching for #LandThink you can pull up only tweets with those hashtags. Hashtags get very popular during breaking news like #Egypt or #Japan and of course Charlie Sheen’s antics can be followed via hashtags. Hashtags go hand in hand with chats as well. You can follow a topic of discussion by following that particular hashtag. #haytalk is only about hay but they also have specific chat times where in real time they discuss issues like livestock feeding and forage management. There are hundreds of chats going on each week and finding new places to connect on any topic is very easy on Twitter.

So how do you navigate the maze of social media and know which places are best? You don’t. Maintaining a few good profiles and making meaningful and helpful posts about relevant topics is a general rule of thumb. Keep in mind that this is just a discussion about one aspect of marketing and that each property will have unique marketing requirements due to its attributes and location. Each agent is also different and has tools that work for him or her the best. Not one social media platform or one website is the best or the only place a property should be posted. Social media is just another tool in the box and in the end that really is all you need… a good toolbox.

Remember several years ago when gasoline skyrocketed to $4.00 per gallon? Of course you do, but did you quit driving, or even change your driving habits much? Probably not.

Now, what if the price had gone to $41.60 per gallon? Think you might have changed your driving, or even stopped driving at all.

In the North Carolina mountains, that’s exactly what happened in April of 2009 when asking prices for 100 acres or more of mountain land shot up to $42,211 per acre. At that same time, the average selling price was a mere $4,017 per acre.

Can you guess what happened next? Yes – that’s correct – land buyers simply said “I don’t think so!” – and promptly disappeared from the land market. That unbelievable level of asking prices was the single most destructive move to hit the land market in North Carolina.

So… How did asking prices manage to climb to such oxygen-deprived levels back in 2009? Better yet, was there already in place something that might have prevented the destructive rise in asking prices?

Most land brokers, also being REALTORS®, subscribe to the REALTOR® Code of Ethics – right?  Take a look at the very first Article in that Code:

Article 1

When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client.

Better yet, look at how the following clarifies that first Article:

Standard of Practice 1-3

REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.  

Nevertheless, in a market where actual selling prices averaged $4,107 per acre for 100+ acre parcels, brokers were taking listings with asking prices that AVERAGED $42,211 per acre. Is that what is called “protecting and promoting the interests of their client”?

In defense of those brokers, property owners wishing to sell were, at the same time, succumbing to plain old human greed. Reacting to false, unfounded rumors of huge sale prices, they were making unreasonable demands on their brokers to list at ever-higher prices. Brokers, under the onslaught of demands from sellers, capitulated and took the listings at unwinnable prices – and the land market collapsed under the weight.

Now – we all know we are not in control of mankind’s greed for affluence. Brokers do have one powerful tool at their disposal however. On the grounds of the U.S. Air Force Academy in Colorado Springs sits the ‘‘Eagle and Fledglings Statue’‘ – given as a gift to the Academy in 1958 by the personnel of Air Training Command. This statue contains the following inscription by Austin Dusty Miller:

“Man’s flight through life is sustained by the power of his knowledge.”

Very simply, there’s power in knowledge! Therein lies the broker’s solution to accepting grossly overpriced listings – KNOWLEDGE.

If a broker specializes in land (another powerful concept), he or she can list only properties priced to sell instead of wallowing through months and years without showings and buyers. This is accomplished by acquiring a complete knowledge set of actual sale prices over a period of years for land – and only land.

The first step is to acquire from the county tax office a database of all property owners owning over 100 acres. These records can often be acquired over the Internet (Google the “GIS” for your county), or by requesting a CD with the information from the tax office. These records general include the last sale date, and some reference as to the last sale price.

With that information, a fruitful database of actual sales can be compiled showing acreage, last sale price, sale price per acre, Parcel ID #, and name and address of the owner. Once you have 5 or 10 years of actual sales, and can present that data in a friendly, readable form to sellers, you will have ½ of the necessary knowledge needed to list property at fair market value. Notice that I said only ½ of the knowledge.

“What’s the other ½” – you ask? Property for sale now by all other brokers in the area will complete your knowledge base.

If a broker belongs to MLS, listing information can be researched through the MLS land listings. The database of property for sale now should include a Parcel ID number, the asking price, the acreage, and the asking price per acre. Convert that data into a table that is easy for property owners to view and decipher. Be sure to use some identifying information such as owners name, Deed Book and Page, or Parcel ID number. This gives your table added credibility to the person reviewing it.

When reviewing your tables with potential listing property owners, begin with past sales first. Explain that all information was taken directly from the local tax office – not your personal files. By presenting past sales in an objective manner, you reduce the raw emotion likely when they find prices  not as high as they thought.

Next, move on to properties currently listed for sale. These properties will be the competition faced by the property owner once they list. They are normally higher – being asking prices – and are likely to be more pleasing to the prospective listing individuals.

Be wary of listing property at the same level as others for sale now. Being higher than what past buyers have been willing to pay, these asking prices are the “wished for” prices of present owners – and not necessarily indicative of present value.

In summary, many properties in today’s land market are flat out overpriced – well above what any respectable buyer will pay. The broker who educates prospective sellers about the realities of today’s land marketplace will come away with attractive properties – at fair prices. What’s more – buyers are always waiting!

When you decide to sell your land – whether it be farmland, timberland, ranchland or hunting land, be sure to ask the agent about the websites where your land will be listed. After you ask about websites then ask about social media websites. We’ll do a two-part series and cover social media next time so let’s start with websites.

For residential properties the big three are Realtor.com, Zillow.com and Trulia.com. Although some may include Yahoo, it is really just a Zillow feed. For all practical purposes these websites are useless when it comes to the land market. They are not setup for easy searching for rural properties. They require “Actual Addresses” and for the most part they are just cumbersome and difficult to navigate for any type of vacant land properties.

For land the big three are LANDFLIP.com, LandsofAmerica.com and LandWatch.com. We all have our favorites, but for the most part these websites list more land than all other smaller land targeted websites combined. There are others that feed off or have merged with other sites but these are the main ones that buyers will find first in any search.

So, if your agent is focusing all efforts on MLS advertising which mostly only reciprocates out to residential websites to sell your land then you are likely not getting the full marketing you need. Land buyers search out specific land terms and visit land websites often. Most buyers will tell you that they have had a search setup at a land specific website for months or some cases even years in a specific county or even several counties. Recently, a buyer lead contacted us and told us that they found a land listing that they were very interested in but that the listing agent was from out of state and sold houses at their website. They wanted someone who was actually from our state that specialized in land to help them. They did not even call the listing agent on this property. Instead, they searched out the words “land” and the specific area. So, if your agent is not even getting calls about their listing then you have a major marketing problem.

Another issue with listings is IDX, MLS feeds, and syndication. Unh? What is all that mumbo jumbo and why should you care? Most folks do not care about these terms nor do they even need to know the technical details but your agent should know exactly what they are and whether they use them or not.  If an agent chooses to list land on the Multiple Listing Service (MLS) then agreements can be made and those listings can be shared via IDX at other agent websites with specific rules. Syndication is where the listing feeds out (or syndicates) to other websites. For example, most MLS’s will syndicate their listings to Realtor.com meaning that the agent does not have to go to Realtor.com and re-enter the listing. This all sounds great but the problem is that not all websites bring in the same data nor do they all present it the same way. Some will only list the brokerage name and no agent contact information, some will only import one photo, etc. and the list goes on. It can become a nightmare for an agent because when the listing sells they find it nearly impossible to get it off all the syndicated websites.

The bottom line is that you need an agent that understands and knows exactly where their listings are posted. Also, they need to be able to edit or delete those listings at each and every site. Nothing is worse than having an old listing that a buyer calls on and they are told it already sold. It frustrates the buyer to no end especially now that most of the major websites offer agent advertising by zip code. A buyer will click on a listing and then see three buyer agents that have paid to be there. The buyer contacts one of them and usually the advertiser has no clue about the listing. Buyer frustration cycle starts all over again. Buyers give up and start searching out the listings and specific companies that sell land and contact the listing agents directly about the property.

A major real estate firm recently announced it will stop sending listings to Realtor.com and Trulia.com. This is not a small specialized local company it is a huge brokerage covering multiple markets. You can read all the details about the specifics but the major point is that it is a residential firm not a land brokerage. They recognize the importance of their listing posts and they want their agents to actually get the inquiries and leads for their own listings. Each area will be different and no blanket statements can be made about which site or which listing strategy is best. However, one thing is certain your listing agent should have a plan for the marketing and know exactly where the listing has been posted.

Websites that focus on certain keywords for search engine optimization (SEO) are one of the best tools a land agent can use. LANDFLIP just announced a new specialized search for land listings this week called RANCHFLIP.com. These are exactly the types of tools that you should be looking for your agent to have in their marketing plan.

Marketing includes more than just websites. In Part 2 we will cover social media marketing.

With the recent increases in farmland values and drop in real estate prices, some smart landowners might consider selling their farm and purchasing a new home. What are the tax implications of these transactions? The answer depends upon such factors as whether the farm has been the taxpayer’s primary residence or not; and whether the taxpayer has intent to purchase new property of equal or greater value. The Internal Revenue Code provides multiple opportunities for taxpayers to maximize their benefits when selling their property including tax deductions on the sale of the primary residence and 1031 tax deferred exchanges.

Primary Residence

Internal Revenue Code Section 121 allows a taxpayer to exclude up to $250,000 ($500,000 for married persons filing jointly) of the gain on the sale of their principal residence given during the five-year period from the sale date, the home has been owned and used by the taxpayer as their primary residence for periods of two years or more. This exclusion is available no more than once every two years. Those taxpayers who don’t satisfy the two-year ownership and use requirements can exclude a prorated fraction of the $250,000/$500,000 deduction given the taxpayer has a change in health or place of employment. Realized gain is determined by the following two steps:

Step 1:  Original Purchase Price + Improvements = Adjusted Basis

Step 2:  Sales Price – Adjusted Basis – Selling Expenses = Realized Gain

If the realized gain is less than $250,000 (when filing individual federal return) or $500,000 (when filing a joint federal return) there is no tax. If the gain is higher and the taxpayer is in the 25, 28, 33 or 35 percent income bracket, the tax is 15 percent. If the taxpayer is in the 10 or 15 percent income bracket, the capital gain tax may be 5 percent. As always, check with your accountant to confirm the tax consequences.

A principal residence located on the farm can be sold and replaced with a primary residence. Seek guidance from a farm realtor to establish comparable selling prices for the home and farmland.

Tax Impact of Selling the Farm

When selling the farm, there are two types of properties being sold, the land and affixed buildings –real property and equipment or livestock– personal property. Internal Revenue Code Section 1031 allows the taxpayer to defer the capital gains and recaptured depreciation taxes when equal or greater, like-kind real and personal property are replaced within 180 calendar days of the sale.

1031 Exchange

If the intent is replace the real and personal property, replacement property is acquired of equal or greater value. The farmland being sold can be exchanged for any real property in the United States including rental properties, parking lots, oil and gas royalty interests and single tenant, triple net leases such as a CVS Pharmacy or similar tenant. To defer the tax on the personal property, like-kind or like-class personal property would need to be acquired. Each type of personal property falls into one of thirteen general asset classes or six digit North American Industry Classification Code.

1031 Alternative: Deferred Sales Trust

If only the home is to be replaced then the options are to pay the tax on the real (farmland and buildings) and personal property (equipment and livestock) or consider another tax deferral strategy that does not require the purchase of replacement property. A Deferred Sales Trust, similar to a Section 453 installment loan, allows the proceeds of the sale to be invested by the trust in marketable securities and annuities. Investments are determined by the taxpayer and executed by the trust.  Income from the investments is repatriated to the taxpayer on a schedule determined by the taxpayer. If the taxpayer wants a blend of income and gain from the sale, that can be scheduled. Taxes are paid on the income and capital gains received. Taxes on the capital gain are paid over whatever period of time determined by the taxpayer.

1031 exchange rules have been refined since being created by the Department of Treasury ninety years ago. The Internal Revenue Service (IRS) enforces a Treasury Regulation known as Section 1031 that provides all taxpayers with the ability to defer federal and state capital gain and recaptured depreciation taxes when property held for productive use in a business or investment is exchanged for like-kind property held for productive use in a business or investment. Supporting the 1031 code are 1031 exchange rules based on case law, regulations, revenue procedures, revenue rulings, private letter rulings, technical advice memorandum and other guidance from the IRS.

1031 Exchange Activity

The Joint Committee on Taxation estimates that in Tax Year 2004, the total dollar amounts deferred were $73.6 billion. In Tax Year 2011, the estimated total tax dollar deferral is $2.5 billion, with $.800 billion from individuals and $1.7 billion from corporations. In Tax Year 2012, the estimated tax deferral is projected to increase to $3.2 billion.

1031 Exchange Rules

The basic five 1031 exchange rules include:

1. The federal and state capital gains taxes are deferred if the replacement property is equal to or greater than the property sold.The common misconception is that only the realized gain needs to be reinvested. Both the net equity and debt retired – if any – from the sale must be reinvested to defer 100 percent of the gain.
2. A Qualified Intermediary (QI) must be engaged to accommodate the exchange. This cannot be your CPA , attorney, realtor or financial advisor or a related party such as your employee or lineal blood relative.One exception is in a pure exchange where the Taxpayer and Buyer want each other’s property. For the nominal QI fee, it still makes sense to engage a QI to make sure the 1031 exchange rules are followed.A second exception is if the attorney has provided services related to title closing, they can also accommodate the 1031 exchange.
3. The taxpayer cannot touch or have access to the exchange proceeds or those funds are subject to taxation. Once the exchange proceeds are touched, the exchange is over.
4. The taxpayer who sells is the taxpayer who buys. If the wife owns an investment property, then the wife is the titleholder to the replacement property. The husband can be quit claimed or added to the replacement property title after the closing.
5. Following the first leg closing, the forty-five calendar day identification period begins, followed by an additional 135 calendar days to acquire the replacement property, for a total of 180 calendar days.

A 30 year or more leasehold of land is considered like-kind to a fee interest in land. Providing that the taxpayer has the right to extend the lease, the thirty year leasehold interest is eligible for Internal Revenue Code Section 1031 exchanges, allowing the taxpayer to defer federal and state capital gains while replacing with any type of real property.

Leasehold Interests

Wind energy projects are plentiful in north western Indiana, where it doesn’t take long driving county roads to see the ever present three whirling blades of megawatt turbines, producing electricity and revenue for the land owner. Purdue University, located in western Tippecanoe County, Indiana, is working towards a 100-megawatt turbine park that includes 50 two-megawatt turbines on 1,600 acres. Annual leases are projected to generate $10,000 per turbine. Many Indiana farmers have opted for similar thirty year leases with developers who combine engineering and construction services with power purchase agreements from utilities.

The right to use someone else’s property is a leasehold interest. Improvements made to land leased for thirty or more years are considered real estate. In the example of the wind turbines, the taxpayer who owns the wind turbines, along with the leasehold, can sell the lease. As long as the remaining term of the lease is 30 years or more including extensions, the taxpayer can defer the capital gain taxes when replacing with another thirty plus year lease or other real estate.

Examples of Leasehold Interests

In addition to wind turbines, other common construction projects on leasehold land include cell phone towers, billboards and outdoor advertising. Given the leasehold interest of thirty or more years, billboards and cell towers are improvements to the land and considered  like-kind to a fee interest in other real property.

Leasehold Gray Area

As a general rule, leaseholds with a term of less than thirty years are not considered like-kind to real property. In private letter ruling 200842019, the Internal Revenue Service (IRS) stated in an exchange of leaseholds:

“ if the two leased locations vary in value or desirability or in lease terms, these are factors that relate only to the grade or quality of the properties exchanged and not to their kind or class.”

The IRS may be saying that a lease for less than 30 years may be like-kind to a lease of more than 30 years. In Everett v. Commissioner Internal Revenue, a timber lease for three and six years for rights to remove timber on 5,000 acres was exchanged for a ten year timber lease on 24,000 acres.

Before going to go preview rural land with a real estate agent, ask them what’s in their truck. I never was a Boy Scout. I would have loved to have been one, but just never got the experience. The Scout motto, “Be Prepared” resonates deeply with me. So take a look at the inventory of my truck and hopefully you will see what I mean.

• 2 Compasses
• Handheld GPS
• Plat Books for the 8 surrounding counties
• Gazetteer for Alabama
• Sundry assortment of aerial and topographical maps
• Blank copies of contracts to purchase and listing agreements
• Dozens of Real Estate Consumers Agency and Disclosure (RECAD) forms
• 3 bottles of water
• 2 blaze orange vests and hats
• Come-along
• 30 feet of heavy chain
• 20 foot tow strap
• 3 AlaLandCo signs, 4 directional signs (2 pointing right, 2 to the left)
• Shovel
• Post hole diggers
• Large and small pruning shears
• Pickaxe
• Hatchet
• Bolt cutters
• Pruning saw
• $20 bill for emergencies (such as paying someone to pull you out of the mud)
• Pistol with extra ammo
• A bundle of keys to various properties
• 2 walking sticks
• Digital Camera with extra batteries
• Flip Cam
• Smartphone w/charger
• Rope, ratchet straps, and bungee chords
• 2 rain jackets
• Gerber multi-tool
• Roll of flagging tape
• Wasp spray
• Insect repellant
• 2 pairs of binoculars
• Laser range finder
• 1 pair of snake boots
• 1 pair of taller neoprene boots
• Small towel

When I look at this list it shows there are 4 main scenarios I prepare for:

1. Know exactly where you are; don’t get lost.
2. Make your customer comfortable and safe.
3. Don’t get stuck.
4. Be prepared to do business if they are ready.

Most land companies have tools at their disposal such as ATV’s or UTV’s to make showing land easier. Many agents use laptops and tablets to aid in mapping and navigation as they travel a property. The point of this article is for consumers to know that not all real estate agents are equally competent about land transactions. If you are meeting an agent to preview some rural land and the agent shows up in their Mercedes sedan, you might want to consider taking a look with someone who specializes in land sales. I tell people not to trust an agent with a clean truck. It means they are not doing what they’re supposed to be doing: showing land. Look for some dents and a little trail-pinstriping that is proof they know their way around the woods.

It is not helpful at all to see a piece of property with someone who wants to “paint a picture from the road” and describe what the land is like. You have to get out on it and touch corners and see the ups and downs of the tract. It burns me up to see agents advertise land and only post two maps and a picture from the road. I lost a listing to another agent last year that offered to sell some land at a lower commission than I did. Once the listing was secured, the agent posted 5 pictures on their personal website and offered a 7 word description of a $500,000 tract. Now tell me if the sellers were better served by this agent at a lower commission or by paying a little more and getting exceptional marketing and service.

Let me also dispel the notion that women are not qualified to be land agents. I know some knowledgeable and real land pros like Marisa Morgan Dallman from Kansas, Susan Morrison from Alabama, Jennifer Beecher from Georgia, and Beverly Callaway with AlaLandCo. I am not ashamed to say that Beverly is a better hunter than I am too. She has lots of experience in the woods, is very knowledgeable about land-related issues, and has helped transact some large deals in the past two years. The biggest land deal in my county this year was put together by Kay Beckett with Bill Mackey Realty. She made lots of other agents in the area envious when she sold nearly 4000 acres of ground this spring.

The key is finding an agent that has the knowledge and skills to offer you the best advice and who you feel has your best interests at heart. You have worked way too hard for your money to lose it in a land deal because of an inexperienced or unqualified agent. Find an agent who can be your trusted advisor for all things pertaining to land, and get out there with an agent who is prepared and buy some dirt.

After reading Jeanne Marie Laskas great article “Breeding the Perfect Bull” published in the Smithsonian Magazine, I wondered whether a 1031 tax deferred exchange would make sense when selling prize Red and Black Angus, Simmental, Charolais, Hereford, and Senegus bulls. The article is about “Donnell Brown and his fellow cowboys combining modern science with their decades of experience with cattle ranching to create the perfect specimen named Revelation.” Why would a rancher sell a top breeding bull like Revelation? Some of the reasons include genetics, age, injury and the price offered. Ranchers can take advantage of 1031 tax deferred exchanges when selling their animals and purchasing cattle of equal or greater value.

The R.A. Brown Ranch: Creating Top Breeding Bulls

The R.A. Brown Ranch located near the small town of Throckmorton, in East Texas is not your average cattle ranch. Like 97 percent of U.S. cattle ranches, it is also family-owned and operated, passed down to a fifth-generation rancher in a $76 billion beef production industry comprised of about 750,000 independent “cow-calf operations” with fewer than 50 heads. The Brown Ranch operates a 2,000 head farm specializing in breeding. Such ranches are known as “seed-stock providers” representing the beginning of the beef production cycle where genetics determine the qualities of filet mignon, sirloin and steak burgers.

Selling Top Breeding Bulls: Tax Implications

A top breeding bull can sell for $100,000 once their offspring are proven to be prime calves.

What would be the tax implications of the sale? It depends upon the purchase price, the sales price, the depreciation taken and the state capital gains rate. For example, a bull calf purchased for $10,000 and held for five years, depreciation taken for each of the five years resulting in a net adjusted basis of 0. A sales price ranging from $25,000 to $100,000 and selling expenses of $3,000, the estimated tax due is:

Alaska, Florida, Nevada, South Dakota, Washington and Wyoming do not impose a state capital gains tax.

Livestock: 1031 Exchange Benefits and Requirements

If there is intent to replace the bull with like-kind personal property, another bull or multiple bulls, then the taxes due can be deferred in an Internal Revenue Code Section 1031 tax deferred exchange. The IRS like-kind exchange rules require livestock to be:

• Same sex
• Mixed cattle for steer calves
• Cows for mixed yearlings
• Half-blood heifers for three-quarter-blood heifers.

Steps to 1031 Exchange

Before selling or buying in a reverse exchange, talk with your accountant to confirm the estimated capital gains tax. Once you decide to move forward in an exchange, contact a Qualified Intermediary (QI) to ask questions about the exchange and its mechanics. It is important to discuss where the exchange proceeds will be held, if interest will be earned on the account, and what security measures will be in place such as the use of a qualified escrow account and personal identification number to protect the account.

Once the QI is engaged, let them know the contact information of the sale or purchase, perhaps the auctioneer. The QI will prepare exchange documents for the first leg. Exchange funds will be wired to the escrow account under the taxpayer’s tax identification number.

By the 45^th calendar day, the replacement property will need to be identified by providing information on the bull(s). The value of the replacement property must be equal to or greater than the net sales price; otherwise a tax is triggered on the difference.

Contact the QI to let them know the details of when you are closing on the replacement bulls. The QI will prepare exchange documents for the second leg wiring the exchange proceeds to the closing.

Not every real estate licensee is qualified to help you buy or sell rural land. Their license may make it legal to practice, but their inexperience in land transactions could be costing you thousands of dollars.

WARNING: Some agents who primarily sell residential real estate and dabble in rural land sales will be offended by this article.

The National Association of Realtors (NAR) Code of Ethics and Standards of Practice states:

Article 11
The services which REALTORS^® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage; specifically, residential real estate brokerage, real property management, commercial and industrial real estate brokerage, land brokerage, real estate appraisal, real estate counseling, real estate syndication, real estate auction, and international real estate.

REALTORS^® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth. (Amended 1/10)

The point of Article 11 is to protect consumers and clients from hiring an agent that is not competent in specific areas of real estate. All real estate agents and brokers are not members of the National Association of Realtors, and that is fine. An agent does not have to be a member of an association to be a great real estate agent (so please don’t scream at me in the comment section below). The point of me quoting the Standard of Practice is to show that on a national level there is recognition that there are different aspects of transacting real estate, and that an agent should be competent in the field in which they practice.

Oftentimes I will have a satisfied client or friend ask me if I would be interested in helping them sell their personal residence. I immediately tell them what a horrible residential agent I would make, wearing muddy boots into their house, etc… I honestly tell them “no” because that is not what I do. I am not a residential agent. I have no expertise in that field at all. Listing a residence would possibly be an opportunity for me to make some more money, but I know that I can not provide the level of service my client needs. I want to leave them with a good taste in their mouth about me and my company.

Land Brokerage was recently added to this NAR list due to the recognition that this vein of real estate requires a special knowledge base and skill set to conduct transactions successfully. For instance, a few years ago I was representing a seller on a 32 acre tract and the buyers hired an agent to represent them. This agent was primarily a residential agent but was helping them sell their commercial building and they decided to use him to buy a rural homesite too. When we were previewing the land he wore his nice loafers and slacks, and decided not to walk the perimeter of the tract with me and his buyers. When we all met up again after seeing the property, the buyer asked me,”Will the property perc.?” I said a perc. test would need to be done. The buyers’ agent asked me, “What is a perc. test?” The buyer and I looked at each other silently with a mutual understanding that this agent was not very knowledgeable about rural homesites because he did not know how to gauge the land’s suitability for a septic system. He was accustomed to in-town transactions.

A landowner or buyer of rural property can put their assets or money at risk by enlisting the help of an agent that is not competent in land sales. Every business person has to make the best decision they can with the information that is available to them at the time. The job of a good agent is to bring all of the available information to the table so the buyer or seller can exercise good judgment in a transaction. Sometimes people entrust a friend or relative who sells real estate to help them buy or sell land. Unless they are experienced or uniquely qualified, I would recommend using a land specialist. You will usually come out better, and afterward you will still be on speaking terms with your friend or relative.

Readers may say, “Jonathan I think your exaggerating the number of problems in land sales.” I am a relatively new agent, only getting my license in 2008. But it seems like every land deal I have has some crazy wrinkle in it. I have had listings with 2 camp houses vandalized, a property with a registered sex offender next door, found marijuana planted, a survey that showed a barn on the wrong land that had to be taken down, title problems that killed a deal, a dead man found in a pond of one of my sellers that we had to disclose to the buyer, racist adjoining owners, and lots of other experiences that are funny now but kept me up at nights then. People who have been in the land business longer than I, have many more horror stories. Yesterday I sat in the living room of an owner that bought 100 acres that were distressed in 1999, and he spent the next 10 years in court fighting claims of adverse possession and lawsuits from surrounding owners. He had no title insurance and spent 3 times the price the surveyor quoted him initially to have the survey drawn. At the end of the 10 years he only owns 20 acres and has spent thousands of dollars on attorneys and surveys. It took such a toll on him personally and financially that it is visible how beaten down he is by the whole experience.

The point of this article is for consumers to select the agent who can best help you conduct your land transaction smoothly with your best interest in mind. Look for agents that in addition to being licensed have some professional experience or designations that will be of use to you in your deal. Agents with a long history of land sales or a background in forestry, geology, soil sciences, a long-term farmer, or are members of the Realtors Land Institute are all good things to look for. Check them out before enlisting their help. When you use an experienced land professional, you are increasing your odds of enjoying a smooth successful transaction. Let your land agent spend the sleepless nights; that’s what we get paid to do.

Farms and ranches are made up of real and personal property. Depending upon the intent of the owner, land can be sold in a 1031 exchange replacing with a variety of real property choices including real estate and possibly an asset that provides cash flow such as a triple net lease property with a tenant like CVS Pharmacy. In recent years, given the historically low capital gains rate of 15%, paying the tax was and is an option.

If the owner wants to continuing their farming operations, the option starts with their accountant understanding the tax consequences of the sale. What is the value of the real estate, equipment and livestock? Are there water rights, mineral interests, gas and oil rights or easements that can be sold and gain deferred? If gain exists, the gain can be deferred by replacing with real estate and like kind personal property.

The primary residence stands on its own complying with Section 121 and the two year holding requirement to exclude either $250,000 if filing single or $500,000 if a joint return. A rule of thumb used to determine the amount of surrounding land that can be included with the residence is the area of grass typically cut around the home.

The personal property includes livestock and farming equipment. Does the owner want to replace or simply sell and pay the tax on the gain if one exists? The owner may have losses that can offset some of the gain.

A variety of decisions are required when selling farms and ranches and whether a 1031 exchange makes sense. Always seek the input of your accountant when selling real or personal property.